Aug. 8, 2019

Despite a fair amount of new construction this year, businesses still seem to be buying and leasing commercial space to the point where vacancy has gone down some in most sectors.

A midyear report from Bender Commercial Real Estate Services found slightly improved occupancy in many sectors, with more to come.

While 41st Street ended 2018 with what Bender partner Reggie Kuipers called “an astounding” 18.6 percent vacancy rate in retail space, it has dropped to 15 percent, “and I’d look for that to continue to drop a little as we approach year end,” he said in the report.

“The prestige about leasing space on 41st Street certainly has lost some cachet. However, with traffic patterns, available space at reduced rates and landlords willing to negotiate, it will remain an option for tenants.”

The absorption rate was bolstered by At Home, which leased the 100,000-square-foot Shopko space on West 41st Street shortly after the retailer announced it was closing.

The citywide retail vacancy rate has edged up to 17.6 percent from 15.5 percent at the start of the year, as more space has been built and national closures such as the east-side Shopko, Payless ShoeSource and Charlotte Russe have contributed. But the Arrowhead and Sycamore Shopko location might be close to a deal. An application has been filed with the city of Sioux Falls to turn it into an auto sales and service location that also would include sport vehicle sales and service, and a body shop and vehicle reconditioning center.

If that property and the east-side vacant former Kmart were factored out, the retail vacancy would be 11.1 percent, Kuipers said, adding newer Class A retail centers at 69th Street and Western Avenue and at 85th Street and Minnesota Avenue will continue to be attractive to tenants, while B- and C-level properties will continue to struggle.

“Retail is in constant flux, with many properties and their owners benefiting from the transitioning of old concepts to new, and existing brands repositioning from old school to new,” Kuipers said. “The Sioux Falls retail market has reacted well and continues to churn out fresh concepts and new development. With the continued success and growth of our new community, this trend will continue.”

Office space also has been absorbed through the first half of the year. While downtown has stayed about the same at 13.2 percent, the “suburban” office space has dropped from 13.2 percent at the start of the year to 10.1 percent. The overall market reduced vacancy from 11.5 percent to 9.9 percent.

“As it has for the past two years, the availability of the Citibank campus continues to affect the suburban market,” Bender partner Andi Anderson said.

Industrial space is holding steady, dropping slightly from a 3.23 percent vacancy rate to start the year to 3.16 percent midyear.

“As the market continues to absorb space at the same rate of new construction, vacancy rates will remain steady around its 10-year average of 3.65 percent,” Bender partner Rob Fagnan said. “The overwhelming majority of available product in the market are warehouses in the 5,000- to 20,000-square-foot range, along with several 1,500- to 3,000-square-foot contractor shops.”

Nationally and locally, the industrial market has been the best-kept secret, he added.

“Increased efficiencies in manufacturing and transportation continue to grow and shape the industrial landscape,” he said. “Through the end of the year, vacancy should remain steady with an increase in absorption and new construction.”

To see the full Bender report, click here.